Introduction

The pre-market trading, commonly known as “OTC trading,” involves distributing project tokens in advance through activities such as testnet tasks and social media engagement lotteries. Since these tokens aren’t officially released yet, they’re often distributed via mechanisms such as whitelists or point systems to give users a preview or early expectation of the project’s tokens.

The pre-market market has seen rapid development in recent years. Initially focused on whitelists, the market has evolved to include various forms such as points, PASS cards, and badges. Increasingly, project teams are using the pre-market market to attract users and generate anticipation.

However, the pre-market faces significant issues. As points and whitelists are off-chain assets, they come with risks such as unclear distribution rules, unknown token launch dates, and difficulties in pre-market trading. Recent airdrops, such as those from Blast and zkSync, have highlighted these risks. Tokenizing the pre-market market—moving off-chain assets to the blockchain for trading—could potentially resolve these issues, offering users the opportunity to trade in advance while mitigating risks.

Coral Finance addresses this need by offering tokenization solutions. This article will explore the current state of the pre-market market, its vast potential, and the chaotic issues it faces, and provide a detailed look at Coral Finance’s innovative tokenization approach.

The Vast Potential and Challenges of the Pre-Market

For users, the pre-market is valuable for setting reasonable expectations before a project’s tokens officially launch. Users can estimate potential gains based on current pre-market market prices and circulating supply data. Additionally, the pre-market enables users to lock in profits in advance. While initial assets like points and whitelists can’t be traded on DEXs/CEXs, the pre-market offers methods, both off-chain and on-chain, to secure these gains before the tokens officially launch. It also provides psychological comfort, making the potential value of previously vague token expectations more tangible.

For projects, a healthy pre-market market helps build a more balanced token distribution. Initially, projects issue points to attract users and encourage engagement through staking, social media, and other activities. This approach helps build a broad and active community, essential for project success. Token airdrops after TGE are a reward for community contributions. However, some professional “profit-harvesting studios” exploit this system by creating multiple accounts and using automation to accumulate points, distorting the true distribution of tokens and potentially raising the entry barrier for genuine users. These studios may later sell off their holdings, creating market pressure and potentially harming the token’s price and the project’s long-term prospects.

The pre-market allows early participants, including studios holding large amounts of tokens, to trade before the official launch. This can help alleviate immediate sell-off pressure during TGE and aid in the gradual distribution of tokens through market mechanisms, promoting healthier token allocation.

In traditional finance, the derivatives market significantly surpasses the spot market in trading volume—about five times larger. Similarly, cryptocurrency derivatives trading volume far exceeds spot trading volume. Derivatives offer higher flexibility and diverse trading strategies. The pre-market can be viewed as a derivative market based on token expectations, with assets like points and whitelists serving as derivatives. Despite its conceptual potential, the lack of a centralized platform for adequate liquidity has kept its development at an early stage, leading to unmet trading demand.

Market dynamics indicate that the pre-market market’s practical applications are rapidly expanding, showing that it is gaining market acceptance as an innovative financial tool. Currently, among the top 30 DeFi projects, those utilizing pre-market methods have a combined market cap of $29.5 billion, representing about 31% of the total. This demonstrates the pre-market market’s swift development and growing popularity, with its potential still considerable, including in recent airdropped projects.

Source: Statistics based on data from Defilama

Likewise, despite the unprecedented growth of the pre-market market, it still faces numerous issues and influencing factors, which are gradually being exposed in market projects. The main challenges can be summarized as follows:

1.Asymmetry Between Buyers and Sellers, Limiting Users’ Capital Efficiency:
In simple terms, current pre-market market transactions are primarily facilitated through off-chain manual matchmaking by a third party (such as individuals or institutions). During this process, both buyers and sellers are required to deposit a sum with the third party to secure the transaction in advance. However, this significantly reduces the capital efficiency for users. Moreover, if the seller believes that the anticipated profit from the pre-market transaction far exceeds the value of their deposit, they might back out. In this scenario, the buyer only receives a portion of the seller’s forfeited deposit, losing out on the potential high returns from the token launch. This results in an inherently unequal transaction for the buyer, who faces reduced capital efficiency and missed opportunities for substantial post-market gains.

1. Lack of Liquidity and Instant Trading in the Pre-Market Market:
   As evident from the above transaction process, the pre-market market predominantly deals with off-chain assets, making manual matchmaking the only viable option. This process requires significant manpower and resources and cannot offer the liquidity and instant trading capabilities typical of a DEX. This severely hampers the trading efficiency within the pre-market market.
2. Inability to Reflect Expected Token Prices:
   Due to the nature of off-chain matchmaking, the pre-market market lacks a unified marketplace to reflect the expected prices of tokens. Each third-party facilitator can be seen as a small, isolated pre-market market, where prices depend on the specific user base the third party can reach. Consequently, prices across these “mini-markets” are inconsistent, and cross-market trading is impossible. This fragmentation prevents the pre-market market from accurately reflecting the expected prices of tokens.
3. Unknown Token Launch Dates Increase Users’ Time Costs:
   This issue was particularly evident in the recent zkSync airdrop. Early on, zkSync indicated that there would be a future token airdrop, which led to a surge in user participation in various incentive activities. However, the project did not specify the exact token launch date, creating a situation where the project team continually used positive news to fuel user expectations of the token launch. For users, this created a dilemma: whether to continue investing time and effort into completing the project’s incentive activities without knowing when the token would be released. The sunk costs for users could be substantial. For example, if a user consistently participated in these activities, it remains uncertain whether the eventual returns would offset the prior costs and yield substantial profits. In the case of zkSync, there was a gap of over four years between the initial airdrop incentive announcement and the actual token launch. During this period, users invested considerable time and energy, only to find their efforts ultimately unprofitable.
4. Unclear Distribution Rules in the Pre-Launch Market:
   Since most pre-market market assets are off-chain, the distribution rules and processes lack transparency, making them susceptible to risks such as last-minute rule changes by the project team or insider trading. The recent Blast project airdrop is a case in point. For example, @Christianeth reported that due to the project team’s continuous adjustments to the distribution rules during the activity, they ended up with a mere $100,000 in airdrop rewards despite staking $50 million and participating for over four months.

Source: https://x.com/Christianeth/status/1805973786443067602

These issues underscore that while the pre-market market holds significant potential, it is currently marred by widespread challenges. Some projects have begun to address these issues by tokenizing the pre-market market, with notable examples being Pendle Finance and Whales Market. However, these solutions still face certain limitations or potential risks, which will be compared in detail in the following sections.

Coral Project Analysis

Coral is dedicated to becoming the leading marketplace and liquidity hub for tokenized assets. In the early stages of a project, teams often distribute points, PASS cards, and whitelist spots as tokenized assets to attract user participation and build community engagement. These assets are typically later rewarded through token airdrops to users who contribute to the project. Given that different users have varying expectations regarding the value of these tokenized assets and the project tokens themselves, Coral aims to create an expectation market. This market will facilitate liquidity through innovative mechanisms, catering to the diverse needs of market participants, whether they are bullish or bearish.

Additionally, the pre-market trading mechanism will enable users to realize returns in advance, without waiting for the official launch of the project tokens, thereby locking in their investment returns. It’s important to note that not all points will be tradable on Coral. Many social and transactional points in the market, due to their potential for being gamed and their inability to accurately measure a user’s contribution to a protocol, have come under increased scrutiny for sybil resistance and are deemed to be of low value. Only tokenized assets with real backing, such as Eigenlayer points, will be tradable and circulate on the Coral platform. Coral will implement rigorous vetting and screening processes to ensure that only those tokenized assets with actual value and liquidity are tradable on its platform.

The core features of Coral can be summarized as follows:

1. Tokenization of Points: Coral integrates points backed by real assets, automatically converting these points into tradable tokens, with each type of point corresponding to a specific corToken.
2. Lock-and-Release Mechanism: Tokenized points are not fully tradable from the outset. Coral employs a “base + acceleration” unlocking mechanism, allowing users to realize returns in advance while also accumulating earnings faster by providing liquidity.
3. Native SWAP: Coral has developed a native DEX, corSwap, offering users deeper liquidity pools and a seamless, efficient trading experience.
4. Acceleration Rights Leasing Market (Coming Soon): In response to the unique unlocking mechanism, Coral will establish a convenient acceleration rights leasing market, catering to borrowers with insufficient LP provision and lessors looking to optimize the use of their idle LPs.
5. veToken Voting (Coming Soon): Users can lock CORL tokens to obtain veCORL, enabling them to participate in pool voting and further incentivizing them to add liquidity. Projects can also bribe veCORL holders to gain more votes for their liquidity pools.

Operational Mechanism of Coral:

1. Users stake their LST/LP Tokens obtained from DeFi protocols into Coral.
2. Coral converts the points corresponding to the staked LST/LP Tokens into locked corTokens.
3. Users receive the locked corTokens, which begin unlocking at a base speed.
4. Users are free to trade the unlocked corTokens on the DEX; non-participating users can directly purchase corTokens on the DEX.
5. Users can add liquidity for corTokens and stake the corresponding LP Tokens to obtain Boost acceleration rights. These rights accelerate the unlocking speed of corTokens.
6. Users can lease their acceleration rights/LPs through the leasing market to earn additional income.
7. At the project’s TGE, Coral will tally and settle the corTokens held by users and distribute the project tokens according to the project’s rules.

Coral’s Flywheel Effect

Coral has constructed a powerful economic flywheel through the innovative combination of its accelerated unlocking mechanism and veToken design. This unique approach not only effectively empowers the token but also continuously incentivizes user participation, creating a self-perpetuating and ever-accelerating growth cycle.

In Coral’s lock-and-release mechanism, tokenized points in the form of corTokens do not unlock all at once. Users can choose to unlock corTokens at a base rate or accelerate the process by injecting funds into the liquidity pool and utilizing the Boost mechanism. This design encourages users to provide liquidity to the corToken trading market while also mitigating the potential for massive sell-offs in the original points market, thereby increasing users’ immediate returns. Moreover, by providing liquidity, users not only gain accelerated unlocking rights but also receive CORL tokens as rewards from the platform, offering additional incentives. The acceleration rights leasing service in the leasing market lowers the participation threshold for users who prefer not to provide liquidity directly, while opening up additional revenue streams for those who do, thus effectively promoting overall liquidity growth on the Coral platform.

These combined incentives will attract users to commit their assets for the long term, resulting in deeper liquidity pools for tokenized points. This enhanced liquidity depth, along with diversified incentive strategies, will enable Coral to offer users the most competitive prices for points on the market, continuously attracting new users and increasing liquidity and trading volume. For project teams, Coral’s built-in liquidity incentive mechanisms and more stable liquidity base will provide them with the lowest possible cost for acquiring liquidity. The combination of better point prices and mechanisms that allow users to lock in rewards faster by contributing will attract users and studios to actively participate in Coral’s points markets, bringing in new users. The increase in Total Value Locked (TVL), frequent trading of asset-backed tokens, and the expansion of the user base will enhance the competitiveness of the projects involved. This will, in turn, attract more high-quality projects to issue tokenized points on the Coral platform, bringing in even more users and traffic.

Throughout this process, CORL, as Coral’s native token, is designed to capture protocol value through its sophisticated utility:

• Users can lock CORL tokens to obtain veCORL, allowing them to influence liquidity reward distribution through voting.
• Projects can bribe veCORL holders to secure more liquidity rewards, thereby increasing the attractiveness of their liquidity pools.
• veCORL holders receive earnings based on voting results and liquidity reward distribution. These earnings include trading fees, interest, and incentives from other partner projects.

As Coral’s value becomes more apparent, the demand for CORL will likely increase, driven by users’ desire to participate in governance through veCORL and to maximize their Boost returns. This, in turn, will drive up its market value.

Coral and others

Coral and Other Players in the Pre-Market Trading Space

In the current market, few projects are dedicated to solving issues in pre-market trading. Among the existing solutions, Whales Market and Pendle stand out as representative projects.

1.Whales Market

Whales Market has introduced an innovative OTC (Over-The-Counter) trading platform that focuses on securing trades through collateral. Sellers lock assets as collateral to guarantee the delivery of tokens to buyers when they are officially launched. If the seller fails to fulfill their commitment, the collateral automatically transfers to the buyer as compensation, thereby eliminating the trust and security issues traditionally associated with OTC markets. Before the advent of Whales Market, trading non-liquid assets like crypto points, airdrop distributions, and whitelists often faced high risks due to the lack of a formal market. Whales Market provides a secure, transparent platform for buyers and sellers without relying on a trusted third party, marking a significant innovation in the pre-market trading space. However, Whales Market fundamentally operates as a dual-collateralized P2P trading model, akin to options trading, which can be unfair to buyers when token values surge. If the token’s potential gain far exceeds the collateral cost, sellers might opt to forfeit the collateral rather than deliver the token. Although buyers receive the collateral as compensation in case of seller default, they lose the opportunity for significant token appreciation, the opportunity cost of the collateral, and the time cost of waiting for the TGE (Token Generation Event). For instance, in the case of a long-delayed project like ZKsync, the buyer’s losses could be even more pronounced.

2.Pendle

Pendle is a permissionless yield trading protocol that allows users to execute various yield management strategies. Pendle’s core innovation lies in the tokenization of yields. Pendle wraps yield-bearing tokens into SY (Standardized Yield Token)—for example, converting stETH into SY-stETH, making the underlying yield-bearing tokens compatible with Pendle’s AMM (Automated Market Maker). SY is then split into two components: PT (Principal Token) and YT (Yield Token). Both PT and YT can be traded through Pendle’s AMM. Pendle’s application in the pre-market trading space is particularly noteworthy, as it addresses the scenario of point discount yield trading. With the rise of the LRT (Liquid Restaked Token) concept, Pendle’s TVL (Total Value Locked) and market value have seen significant growth in just a few months. By customizing and integrating LRTs, Pendle allows users to lock in ETH yields, EigenLayer airdrops, and airdrops associated with restaking protocols that issue LRTs, offering a diversified range of yield opportunities. Additionally, Pendle’s YT token supports a “leveraged point liquid staking” strategy, where users can exchange one yield-bearing token (e.g., eETH) for more YT, accumulating more points, similar to holding a larger amount of yield-bearing tokens. This mechanism directly reflects users’ expectations for points in the YT price. However, the Pendle model also faces potential challenges. The early market is prone to bubbles; as the expiration date approaches, the value of YT and its implied points gradually decays to zero.

Looking at Coral, as a trailblazer in tokenizing pre-market points, it has effectively tackled many challenges in today’s market, creating a more efficient and fair trading environment. Coral’s innovative “lock-then-release” mechanism curbs excessive point sell-offs, helping to stabilize point values and prevent the typical decay that occurs over time.

1. Coral’s innovative “lock-then-release” mechanism curbs excessive point sell-offs, helping to stabilize point values and prevent the typical decay that occurs over time.
2. Through its unique design, Coral transcends the limitations of traditional pre-market trading, fostering a win-win scenario for both users and project teams. Unlike other platforms that offer only one-sided participation, Coral creates a dynamic, two-way environment where users can cash out their points early and trade on the Coral platform, benefiting from both liquidity and flexibility. For project teams, the point system becomes a powerful incentive tool. The active trading of tokenized points gives teams a platform to demonstrate their value and potential, with positive market feedback likely to boost their token’s performance after the TGE.
3. Coral’s innovative mechanism appeals to a diverse user base, including active participants, investors, speculators, and traders. This diversity not only increases platform activity but also deepens market liquidity and trading volume.
4. Coral is committed to providing a fair trading platform where buyers and sellers can engage freely, collaboratively determining point prices, thus enhancing market transparency and fairness.
5. But Coral’s impact goes beyond just providing liquidity. The platform plans to explore various use cases for points in the future, offering users more opportunities for returns and strategic choices.
6. By streamlining the trading process and removing complex financial concepts and collateral requirements, Coral makes it easy for everyday users to participate. This user-friendly approach lowers the barrier to entry, attracting a broader audience.

Summary & Evaluation

The pre-market trading sector provides cryptocurrency investors with the unique opportunity to engage with projects before their tokens officially launch. This model not only enriches the market landscape but also introduces novel investment strategies and methods for managing expectations. However, this sector grapples with challenges such as limited liquidity, low trading transparency, and inefficient capital use. The risks and uncertainties surrounding off-chain assets, in particular, mean that while investors have the potential for significant gains, they also face substantial risks. These issues have impeded the sector’s development and maturity.

In this environment, Coral has made a groundbreaking impact with its innovative tokenization solution for pre-market points. Coral offers a secure and efficient trading platform where users can convert points and other pre-market assets into tokens, allowing them to realize value ahead of time in a transparent and fair market. Moreover, Coral provides diverse opportunities for users, including liquidity provision through LP pools, leasing acceleration rights, and participating in veCORL governance voting. These features create multiple pathways for value enhancement. For project teams, Coral’s benefits extend even further. The lock-then-release mechanism not only ensures liquidity and focus on the platform but also reduces the risk of project failure. Thanks to Coral’s positive flywheel effect, the platform is set to become a major traffic hub, attracting new users, boosting project TVL, and supporting growth in other key metrics. The active trading of pre-market assets and the platform’s strong market performance enhance the appeal and impact of projects, providing a solid foundation for their tokens’ market performance post-TGE. Coral’s design fosters a win-win scenario for users, project teams, and the market, promoting the healthy evolution and sustained success of the pre-market trading sector.

Eureka Partners is optimistic about Coral’s future and anticipates that this new asset and narrative will play a significant role in the growth of the pre-market trading sector.

References:

https://defillama.com/https://www.coraldex.finance/https://docs.pendle.finance/cn/Introduction

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